<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 1999
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number: 0-19450
OAKHURST COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
2751 CENTERVILLE ROAD, SUITE 3131, WILMINGTON, DELAWARE
19808
-------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(817) 416-0717
----------------------------------------------------
(Registrant's telephone number, including area code)
3513 CONCORD PIKE, SUITE 3527, WILMINGTON, DELAWARE
19803
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 1, 1999, 4,943,018 shares of the Registrant's Common Stock,
$0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets at May 31, 1999
and February 28, 1999 ............................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended May 31, 1999 and May 31, 1998 ......................... 4
Condensed Consolidated Statements of Cash Flows for the three month
periods ended May 31, 1999 and May 31, 1998 ......................... 5
Notes to Condensed Financial Statements .............................. 6
</TABLE>
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<PAGE> 3
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS MAY 31, FEBRUARY 28,
1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash ........................................................................ $ 255 $ 241
Trade accounts receivable, less allowance of $397 and $388, respectively .... 3,474 3,330
Other receivables ........................................................... 182 158
Inventories ................................................................. 6,525 6,045
Other ....................................................................... 224 159
------------ ------------
Total current assets .................................... 10,660 9,933
------------ ------------
Property and equipment, at cost .................................................. 2,079 2,045
Less accumulated depreciation ............................................... (1,347) (1,344)
------------ ------------
732 701
------------ ------------
Investments:
Equity ...................................................................... 1,018 1,125
Other ....................................................................... 1,379 1,379
Note receivable .................................................................. 1,330 1,330
Excess of cost over net assets acquired, net ..................................... 2,033 2,080
Other assets ..................................................................... 317 328
------------ ------------
6,077 6,242
------------ ------------
$ 17,469 $ 16,876
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 7,399 $ 5,662
Accrued compensation ........................................................ 416 509
Current maturities of long-term obligations ................................. 234 218
Current maturities of long-term obligations, related parties ................ 88 88
Accrued interest ............................................................ 105 78
Other accrued expenses ...................................................... 202 399
------------ ------------
Total current liabilities ............................... 8,444 6,954
------------ ------------
Long-term obligations:
Long-term debt .............................................................. 4,218 4,669
Long-term debt, related parties ............................................. 3,527 3,408
Other long-term obligations ................................................. 165 177
------------ ------------
7,910 8,254
------------ ------------
Commitments and contingencies .................................................... -- --
Stockholders' equity:
Preferred stock, par value $0.01; authorized 1,000,000 shares, none issued .. -- --
Common stock, par value $0.01 per share; authorized 14,000,000
shares; issued 4,943,018 shares ............................................. 49 49
Additional paid-in capital .................................................. 47,204 47,204
Deficit (Reorganized on August 26, 1989) .................................... (46,137) (45,584)
Treasury stock, at cost, 207 common shares .................................. (1) (1)
------------ ------------
Total stockholders' equity .............................. 1,115 1,668
------------ ------------
$ 17,469 $ 16,876
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 4
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1999 1998
------------- -------------
<S> <C> <C>
Sales .................................................... $ 8,220 $ 8,010
Other income ............................................. 53 32
------------- -------------
8,273 8,042
------------- -------------
Cost of goods sold, including occupancy and
buying expenses ........................................ 6,603 6,576
Operating, selling and administrative expenses ........... 1,628 1,624
Provision for doubtful accounts .......................... 54 10
Amortization of excess of cost over net assets acquired .. 49 49
Interest expense ......................................... 246 137
Other .................................................... -- --
------------- -------------
8,580 8,396
------------- -------------
Loss before loss on equity
investment and income taxes ............................ (307) (354)
Loss from equity investment .............................. (246) --
Income tax expense ....................................... -- (5)
------------- -------------
Net loss ................................................. $ (553) $ (359)
============= =============
Basic and diluted net loss per share ..................... $ (0.11) $ (0.11)
============= =============
Weighted average number of shares outstanding used in
computing basic and diluted per share amounts .......... 4,943,018 3,208,936
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 5
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (553) $ (359)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization .............................. 138 137
Employee stock awards ...................................... -- 5
Other changes in operating assets and liabilities:
Accounts receivable ........................................ (144) (223)
Inventories ................................................ (480) 796
Accounts payable ........................................... 1,737 (877)
Other ...................................................... (292) (71)
------------- -------------
Net cash provided by (used in) operating activities of:
Continuing operations ......................................... 406 (592)
Discontinued operations ....................................... -- 6
------------- -------------
Net cash provided by (used in) operating activities ............... 406 (586)
------------- -------------
Cash flows from investing activities:
Additions to property and equipment ........................... (95) (65)
Reduction in investment ....................................... 107 --
Other ......................................................... -- 1
------------- -------------
Net cash provided by (used in) investing activities ............... 12 (64)
------------- -------------
Cash flows from financing activities:
Net (repayments) borrowings under revolving credit agreement .. (517) 754
Borrowings under long-term debt obligations ................... 230 --
Principal payments on long-term obligations ................... (42) (55)
Deferred loan costs ........................................... (75) --
------------- -------------
Net cash (used in) provided by financing activities ............... (404) 699
------------- -------------
Net increase in cash .............................................. 14 49
Cash at beginning of period ....................................... 241 47
------------- -------------
Cash at end of period ............................................. $ 255 $ 96
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 6
OAKHURST COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1999
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or the "Company") was formed as a
result of a merger transaction in fiscal 1992, in which Steel City Products,
Inc. ("SCPI") became a majority-owned subsidiary of Oakhurst. In accordance with
the merger agreement, Oakhurst owns 10% of the outstanding common stock of SCPI
and all of SCPI's Series A Preferred Stock, with the result that the aggregate
fair market value of SCPI's common stock and Series A Preferred Stock owned by
Oakhurst is equal to approximately 90% of the aggregate fair market value of all
the issued and outstanding capital stock of SCPI and represents 90% of the
voting stock of SCPI. The accompanying condensed financial statements reflect
this control and include the accounts of SCPI.
Oakhurst owns all of the outstanding capital stock of Dowling's Fleet
Service Co., Inc. ("Dowling's") and of Oakhurst Management Corporation ("OMC").
In December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights Recovery & Power LLC ("New Heights") and entered into
an agreement with KTI, Inc. ("KTI") pursuant to which KTI purchased
approximately 1.7 million shares of Oakhurst's common stock at a price of $0.50
per share. In December 1998 OTI acquired a 50% equity interest in, and became
the managing member of New Heights which is to re-develop an existing waste tire
recycling facility in Ford Heights, Illinois into a fully integrated recycling
and waste-to-energy facility. Summarized financial information for New Heights
is not presented as New Heights has not completed its evaluation of the impact
of adopting fresh-start accounting upon its emergence from bankruptcy in
December 1998.
The accompanying condensed consolidated financial statements include
the accounts of subsidiaries for which the Company has a greater than 50%
ownership interest and all intercompany accounts and transactions have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods presented. All adjustments made are of a normal, recurring
nature.
While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is suggested that these
unaudited condensed consolidated financial statements be read in conjunction
with the audited consolidated financial statements for the fiscal year ended
February 28, 1999 ("fiscal 1999") as filed in the Company's Annual Report on
Form 10-K.
Operating results for the three months ended May 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
February 29, 2000.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" which is
presently required to be adopted in years beginning after June 15, 1999.
Oakhurst does not anticipate that the adoption of SFAS No. 133 will have a
significant effect on its financial position or results of operations.
-6-
<PAGE> 7
3. SEGMENT INFORMATION
Oakhurst has historically operated as a wholesale distributor to the
automotive aftermarket. SCPI, operating under the trade name Steel City
Products, principally sells automotive accessories, primarily to discount retail
chains, hardware and supermarket retailers and to automotive specialty stores.
Its customers are based primarily in the Northeastern United States. Dowling's
is a wholesale distributor of automotive radiators and related parts mostly
serving radiator repair shops in the New York, Connecticut, New Jersey, and
Greater Philadelphia, Pennsylvania markets. OTI was formed in December 1998 and
holds investments principally in the recycling and waste-to-energy business.
Each entity is managed by its own decision makers and is comprised of unique
customers, suppliers and employees. The Company's operations are thereby
organized into the three management segments included in the following table (in
thousands):
<TABLE>
<CAPTION>
==========================================================================================================================
Quarter ended May 31, 1999 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 5,625 $ 2,595 -- -- $ 8,220
=========== =========== =========== =========== ===========
Operating profit (loss) $ 376 $ (120) $ (45) $ (272) $ (61)
Segment assets $ 7,336 $ 4,219 $ 3,783 $ 2,131 $ 17,469
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================================================
Quarter ended May 31, 1998 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,855 $ 3,155 -- -- $ 8,010
=========== =========== =========== =========== ===========
Operating profit (loss) $ 212 $ (81) -- $ (348) $ (217)
Segment assets (a) $ 6,649 $ 4,867 -- $ 2,144 $ 13,660
==========================================================================================================================
</TABLE>
(a) In fiscal 1999, SCPI elected to change its method of inventory valuation
from the last-in, first-out method (LIFO) to the first-in, first-out method
(FIFO). Segment assets for the quarter ended May 31, 1998 have been restated as
if the change had taken place at the beginning of such period.
4. CHANGE IN ACCOUNTING PRINCIPLE
In the fourth quarter of fiscal 1999, SCPI elected to change its method
of inventory valuation from the last-in, first-out, (LIFO) method to the
first-in, first-out (FIFO) method. As no change in the LIFO reserve was made
during the first three quarters of fiscal 1999, there was no effect on the May
31, 1998 condensed consolidated statement of operations or cash flows.
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), a holding
company, was formed as part of a merger transaction in fiscal 1992 in which
Steel City Products, Inc. ("SCPI") became a special, limited purpose,
majority-owned subsidiary of Oakhurst. Management believes that the corporate
structure resulting from the merger transaction will facilitate capital
formation by Oakhurst while permitting Oakhurst and its subsidiaries to file
consolidated tax returns so that both may utilize the tax benefits (including
approximately $154 million of net operating loss carry-forwards) attributable
principally to SCPI. Through Oakhurst's ownership of SCPI, primarily in the form
of preferred stock, Oakhurst retains the value of SCPI, and receives
substantially all of the benefit of SCPI's operations through dividends on such
preferred stock. Oakhurst's ownership of SCPI facilitates the preservation and
utilization of SCPI's net operating loss carry-forwards.
Until the formation of its wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in December 1998, Oakhurst was involved primarily in
the distribution of products to the automotive after-market. Its largest
business, which is conducted by SCPI under the trade name "Steel City Products",
is the distribution of automotive parts and accessories and of non-food pet
supplies to independent retailers from a facility in McKeesport, Pennsylvania.
Oakhurst's subsidiary, Dowling's Fleet Service Co., Inc. ("Dowling's") is a New
York-headquartered distributor of automotive radiators and related products.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998, Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights, as discussed below. Also in December 1998, Oakhurst
entered into an agreement with KTI, Inc. ("KTI") that provided for the purchase
by KTI of approximately 1.7 million shares of Oakhurst's common stock at a price
of $0.50 per share. In conjunction with the private placement of stock, KTI
committed to lend Oakhurst up to $11.5 million, and in certain circumstances up
to $17 million, under a loan agreement. KTI is an integrated waste management
company with specific experience in the turnaround of co-generation facilities.
In December 1998 OTI acquired a 50% equity interest in, and became the managing
member of New Heights Recovery & Power, LLC ("New Heights") which is to
re-develop an existing waste tire recycling facility in Ford Heights, Illinois
into a fully integrated recycling and waste-to-energy facility.
In addition to the recycling business, in January 1999 OTI made a
minority investment in Sterling Construction Company, ("Sterling") a profitable,
privately-held Texas-based pipe laying and road building contractor that is
expected to participate in the significant increase in infrastructure spending
in Texas, and may offer synergies with New Heights by using crumb rubber from
recycled tires in "rubberized asphalt".
Activities of New Heights are reported on the equity method of
accounting. The investment in Sterling, which consists of an equity interest of
approximately 7% and subordinated debt of $1.35 million, is reported on the cost
method of accounting.
The Sterling subordinated debt is convertible into shares of common
stock of Sterling, at any time at the option of OTI, or upon the closing of a
defined public offering of Sterling. Assuming exercise of its right to acquire
an additional approximately 7% of Sterling stock, OTI would own between 16% and
17% of Sterling following conversion of the debt.
-8-
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash derived from the operations of its subsidiaries,
Oakhurst's liquidity and financing requirements are determined principally by
the working capital needed to support each subsidiary's level of business,
together with the need for capital expenditures and the cash required to repay
debt. Each subsidiary's working capital needs vary primarily with the amount of
inventory carried, which can change seasonally, the size and timeliness of
payment of receivables from customers, especially at the SCPI subsidiary which
from time to time grants extended payment terms for seasonal inventory
build-ups, and the amount of credit extended by suppliers.
At May 31, 1999, Oakhurst's debt primarily consisted of (i) a credit
facility with an institutional lender (the "Credit Facility"), pursuant to which
approximately $4.1 million was borrowed under a revolving credit facility (the
"Revolver"), (ii) notes payable of $198,000 that were issued in connection with
the fiscal 1995 acquisition of Dowling's (the "DFS Notes"), (iii) notes payable
with outstanding principal balances aggregating approximately $147,000 that were
issued in connection with the settlement of certain contingent liabilities
related to SCPI's former retail division, (iv) a Subordinated Loan of $88,000,
(v) notes payable aggregating $86,000 for the purchase of vehicles at Dowling's,
and (vi) a balance of $3.5 million outstanding under the KTI Loan.
Oakhurst and its subsidiaries, except OTI, have available financing
under the Revolver up to a maximum of $7 million, subject to a borrowing base
that is calculated according to defined levels of the subsidiaries' accounts
receivable and inventories. At May 31, 1999, the aggregate borrowing base under
the Revolver was $5.6 million. In March 1999 the Revolver was extended to April
2000 and was amended to (i) increase certain borrowing rate percentages at SCPI,
(ii) increase the interest rate to Citibank N.A. base rate plus 2% and (iii)
amend the financial covenants to include a minimum level of Earnings Before
Interest, Taxes, Depreciation and Amortization ("EBITDA"). The Revolver provides
for subsequent renewal terms of one year each upon payment of a renewal fee of
0.5% of the entire line, unless earlier terminated as provided for in the
agreement. Management believes that the Revolver will provide adequate funding
for the Company's working capital requirements for at least the next twelve
months, including seasonal fluctuations, assuming no material deterioration in
current sales levels or gross profit margin.
YEAR 2000
The Year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
use of computer programs which have been written using two digits, rather than
four, to define the applicable year of business transactions.
In fiscal 1999, SCPI acquired a new, integrated, Year 2000 compliant
computer system to completely replace its old information technology system.
SCPI is in the process of implementing the system, which is expected to be
completed by September 1999. At Dowling's, the consultant who developed the
existing software of its customized information technology system was engaged to
re-write the computer code to be Year 2000 compliant; this was completed in
December 1998. No critical noninformation technology systems have been
identified by Oakhurst and its subsidiaries which are not Year 2000 compliant.
The Company's Year 2000 plan also includes contacting its major suppliers and
other significant third parties with which it does business to obtain their
assurance of Year 2000 compliance. This phase of Oakhurst's Year 2000 plan is
expected to be completed by July 1999.
To date, the Company has spent approximately $230,000 on the Year 2000
issue and believes that the remaining potential cost related to the issue will
be less than $25,000. The amount spent to date includes approximately $10,000
for the software upgrade at Dowling's and approximately $220,000 for the
purchase
-9-
<PAGE> 10
of the new system at SCPI. In addition to achieving Year 2000 compliance, SCPI's
new system is expected to provide other important operating benefits as compared
with its former system.
The Company believes that only minor and temporary interruptions in
service may be experienced by the Company and its subsidiaries, suppliers and
customers regarding Year 2000 issues. In the worst case, the Company would be
able to continue to conduct its business through the use of manual systems.
From time to time the information provided by the Company or statements
made by its employees may contain so-called "forward-looking" information that
involves risks and uncertainties. In particular, statements contained in this
Item 2 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are not historical facts (including, but not
limited to, statements concerning anticipated sales, profit levels, customers
and cash flows) are forward-looking statements. The Company's actual future
results may differ significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, but are not limited
to, the factors discussed above as well as the accuracy of the Company's
internal estimates of revenue and operating expense levels. Each of these
factors and others are discussed from time to time in the Company's Securities
and Exchange Commission filings.
MATERIAL CHANGES IN FINANCIAL CONDITION
At May 31, 1999, there had been no material changes in the Company's
financial condition from February 28, 1999, as discussed in Item 7 of the
Company's Annual Report on Form 10-K for fiscal 1999.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Operations include the consolidated results of SCPI, which through its
operating division, Steel City Products, headquartered in McKeesport,
Pennsylvania, distributes automotive parts and accessories and non-food pet
supplies; Dowling's, a distributor of automotive radiators and related parts
headquartered in Mt. Vernon, New York; together with OTI and the administrative
costs of SCPI and Oakhurst.
THREE MONTHS ENDED MAY 31, 1999 COMPARED WITH THREE MONTHS ENDED MAY 31, 1998
Consolidated sales in the current year first quarter increased by
approximately $210,000, or by 2.6% when compared with the prior year.
Sales by SCPI increased by approximately $770,000 compared with the
first quarter of the prior year. Sales to existing automotive customers
increased by approximately $384,000, due primarily to the addition of new stores
through an acquisition by one major customer. Sales to new automotive customers
totaled $231,000 for the quarter. Sales of non-food pet products totaled
$562,000, an increase of $155,000 compared with the first quarter of the prior
year, due primarily to increased sales to existing customers.
Sales at Dowling's decreased by $560,000 compared with the first
quarter of the prior year due principally to mild weather throughout the period,
combined with a general slowness in demand for radiator products and aggressive
price competition.
Gross profits were $1.6 million, or 19.7% of sales, in the current year
period compared with $1.4 million, or 18.0% of sales, in the prior year period.
The increase in gross profit resulted from the higher sales volume at SCPI, and
improved margins at SCPI and Dowling's.
There was an increase in the provision for doubtful accounts of $44,000
compared with the first quarter of the prior year. Prior year results included a
reduction to SCPI's reserve due to better collection
-10-
<PAGE> 11
efforts. At Dowling's the allowance for doubtful accounts was increased
in the current quarter due to slow payments by one significant customer.
Interest expense increased by $109,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan.
There was a loss from affiliates of approximately $246,000 related to
OTI's equity investment in New Heights, which represents OTI's share of start-up
activities at the New Heights facility.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Oakhurst is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading or speculation in, derivative financial instruments.
Oakhurst's primary market risk exposure is related to interest rate risk. The
Company manages its interest rate risk by attempting to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs.
-11-
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings outstanding against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*10.1 Extension of Finova loan
27. Financial Data Schedule (EDGAR transmission only).
- ----------------------
* Management contract or compensatory plan or arrangement
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: July 8, 1999 By: /s/ Robert M. Davies
--------------------------
Mr. Robert M. Davies
Chief Executive Officer
Date: July 8, 1999 By: /s/ Maarten D. Hemsley
--------------------------
Mr. Maarten D. Hemsley
Chief Financial Officer
-13-
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*10.1 Extension of Finova loan
27. Financial Data Schedule (EDGAR transmission only).
</TABLE>
- -----------------
* Management contract or compensatory plan or arrangement
<PAGE> 1
EXHIBIT 10.1
FIFTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of March 29, 1999, is entered into between FINOVA CAPITAL CORPORATION,
a Delaware corporation ("FINOVA"), and Oakhurst Company, Inc., a Delaware
corporation ("Oakhurst"), Steel City Products, Inc., a Delaware corporation
("SCPI"), Dowling's Fleet Service Co., Inc., a New York corporation ("DFS"),
Oakhurst Management Corporation, a Texas corporation ("OMC"), Oakhurst Holdings,
Inc., a Delaware corporation ("OH"), and G & O Sales Company, a Pennsylvania
corporation ("G&O"), jointly and severally (individually, a "Borrower" and
collectively "Borrowers").
RECITALS
A. Borrowers and FINOVA have previously entered into that certain Loan
and Security Agreement dated as of March 28, 1996, as amended by that certain
First Amendment to Loan and Security Agreement dated as of June, 1996, that
certain Second Amendment to Loan and Security Agreement effective as of June 1,
1997, that certain Third Amendment to Loan and Security Agreement effective as
of October 31, 1997 and that certain Fourth Amendment to Loan and Security
Agreement effective as of December 29, 1998 (collectively, the "Loan
Agreement"), pursuant to which FINOVA has made certain loans and financial
accommodations available to Borrowers. Terms used herein without definition
shall have the meanings ascribed to them in the Loan Agreement.
B. Borrowers have requested that FINOVA renew the term of the Loan
Agreement for a period of one year after the expiration of the current Renewal
Term (said new Renewal Term to expire on March 28, 2000) and in connection with
such renewal, FINOVA and Borrowers wish to (i) increase the advance rate with
respect to the Eligible Inventory of SCPI, (ii) increase the interest rate with
respect to the outstanding Obligations, (iii) amend the negative covenant
relating to Capital Expenditures and (iv) add a financial covenant relating to
Borrowers' EBITDA.
C. FINOVA is willing to give such consent and further renew and amend
the Loan Agreement under the terms and conditions set forth in this Amendment.
Each Borrower is entering into this Amendment with the understanding and
agreement that, except as specifically provided herein, none of FINOVA's rights
or remedies as set forth in the Loan Agreement is being waived or modified by
the terms of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
<PAGE> 2
1. Renewal Term of Loan Agreement. FINOVA and each Borrower hereby
confirm and agree that the term of the Loan Agreement shall be renewed for a
period of one (1) year after the expiration of the current Renewal Term. The new
Renewal Term shall expire March 28, 2000.
2. Amendments to the Loan Agreement. FINOVA and each Borrower hereby
agree that the following amendments to the Loan Agreement shall become effective
upon the satisfaction of the conditions set forth in paragraph 3 below:
(a) Amendment to Section 1.1 (Total Facility). Section 1.1 of
the Schedule to Loan Agreement is hereby amended and restated to read
in its entirety as follows:
"The Total Facility for Revolving Loans is Seven Million
Dollars ($7,000,000)."
(b) Amendments to Section 1.2 (Loans).
(i) Clause (ii) of Section 1.2(A)(b) of the Schedule
to Loan Agreement is hereby amended and restated to read in
its entirety as follows:
"(ii) the aggregate Inventory Loans to Borrowers in
an amount equal to the sum of: (x) fifty-five percent (55%) of
the value of Eligible Inventory of SCPI; plus (y) forty-five
percent (45%) of the value of Eligible Inventory of DFS, with
value, in each instance, calculated at the lower of cost or
market determined on a first-in, first-out basis, but not to
exceed with respect to each Borrower, the amounts set forth
below:
<TABLE>
<CAPTION>
Maximum Advance
Borrower Against Eligible Inventory
-------- --------------------------
<S> <C>
Oakhurst $ 0
SCPI $ 2,750,000
DFS $ 1,750,000
OMC $ 0
OH $ 0
G&O $ 0"
</TABLE>
provided, however, that FINOVA shall also advance Inventory
Loans to the Borrowers, subject to the foregoing subline
limits, in an amount equal to twenty-five percent (25%) of the
value of that portion of each Borrower's Inventory, which
would otherwise be deemed ineligible because such Inventory
had been held by a Borrower in excess of 180 days and
therefore considered slow moving, consisting of out-of-season
Inventory purchased under special purchase arrangements and
held in anticipation of being sold at the next seasonal
market; provided further, however, that
2
<PAGE> 3
(x) the aggregate outstanding principal amount of Inventory
Loans to the Borrowers shall not exceed at any time Four
Million Five Hundred Thousand Dollars ($4,500,000), (y) the
aggregate outstanding amount of Revolving Loans advanced to
SCPI against its Eligible Receivables and Eligible Inventory
shall not exceed at any time Four Million Two Hundred Fifty
Thousand Dollars ($4,250,000) and (z) the aggregate
outstanding amount of Revolving Loans advanced to DFS against
its Eligible Receivables and Eligible Inventory shall not
exceed at any time Two Million Seven Hundred Fifty Thousand
Dollars ($2,750,000); and provided, further, however, that
FINOVA may, in its discretion, from time to time, reduce the
applicable advance rate with respect to the Eligible Inventory
of any Borrower to the extent that FINOVA determines that the
appraised value of Eligible Inventory, or any category
thereof, has decreased in any material respect as reported in
the updated appraisals delivered to FINOVA pursuant to Section
6.5 hereof."
(ii) Subsection (B) of Section 1.2 of the Schedule to
the Loan Agreement (entitled "Fixed Asset Loan") is hereby
deleted in its entirety.
(c) Amendment to Section 3.1 (Interest and Fees). The first
sentence of the paragraph under the heading "Interest" set forth in
Section 3.1 of the Schedule to the Loan Agreement (entitled "INTEREST
AND FEES") is hereby amended and restated to read in its entirety as
follows:
"The Borrowers shall pay FINOVA interest on the daily
outstanding balance of the Borrowers' loan account at a per
annum rate of two (2) percentage points in excess of the rate
of interest announced publicly by Citibank, N.A., from time to
time as its base rate (or any successor thereto), which may
not be such institution's lowest rate (the `Base Rate')."
(d) Amendment to Section 6 (Collateral Reporting; Inventory).
The following is hereby added to Section 6 of the Loan Agreement as
Section 6.5:
"6.5 Inventory Appraisals. Borrowers shall, at its expense,
no less than once in any six (6) month period, but at any time
or times as FINOVA may request upon the occurrence of an Event
of Default, deliver or cause to be delivered to FINOVA, at
FINOVA's sole discretion, either verbal reports of desktop
appraisals or written reports of full appraisals as to the
Inventory, in form, scope and methodology acceptable to FINOVA
by an appraiser acceptable to FINOVA, addressed to FINOVA and
upon which FINOVA is expressly permitted to rely (with the
understanding that FINOVA may reduce the advance rates of
Eligible Inventory based on the results of such appraisals as
set forth in Section 1.2(A) of the Schedule)."
3
<PAGE> 4
(e) Amendments to Section 13.14 (Financial Covenants).
(i) The paragraph under the heading "Tangible Net
Worth" as set forth in Section 13.14 of the Schedule to the
Loan Agreement (entitled "FINANCIAL COVENANTS") is hereby
amended and restated to read in its entirety as follows:
"Tangible Net Worth: Each of the Borrowers listed
below shall maintain at all
times a Tangible Net Worth of
not less than the amounts set
forth opposite their names
below:
<TABLE>
<CAPTION>
Borrower Tangible Net Worth
-------- ------------------
<S> <C>
SCPI $3,500,000
DFS $2,000,000
</TABLE>
(ii) The following paragraph is hereby added to the
end of Section 13.14 of the Schedule to the Loan Agreement
(entitled "FINANCIAL COVENANTS"):
"EBITDA: As of the end of each fiscal quarter ending
during the periods set forth below,
Borrowers shall have consolidated EBITDA
(net of EBITDA of any Affiliate of a
Borrower not a `Borrower' hereunder) of not
less than the applicable amount indicated
below, measured on a trailing twelve (12)
month basis ending as of the measuring date:
<TABLE>
<CAPTION>
Quarter Ending Amount
-------------- ----------
<S> <C>
May 1999 $ 200,000
August 1999 through $ 500,000
November 1999
February 2000 and thereafter $ 700,000"
</TABLE>
(f) Amendment to Section 14 (Negative Covenants). The
paragraph under the heading "Capital Expenditures" set forth in Section
14 of the Schedule to Loan and Security (entitled "NEGATIVE COVENANTS")
is hereby amended and restated to read in its entirety as follows:
"Capital Expenditures: The Borrowers shall not make or incur any
Capital Expenditure, that is not financed, if after giving effect
thereto, the aggregate amount of all unfinanced Capital Expenditures
actually made by Borrowers in any fiscal year would exceed Two Hundred
Thousand Dollars ($200,000)."
4
<PAGE> 5
(g) Amendment to Section 18.1 (Defined Terms). The following
definition is hereby added to Section 18.1 of the Loan Agreement
(entitled "Defined Terms") in its proper alphabetical order:
"`EBITDA' for any fiscal period of a Borrower, means the net
income of such Borrower for such fiscal period, plus interest
expense, depreciation and amortization and provision for
income taxes for such fiscal period, and excluding
non-recurring miscellaneous income and expenses, all
calculated in accordance with GAAP."
3. Effectiveness of this Amendment. The effectiveness of this Amendment
and the consents provided herein and before FINOVA is required to extend any
credit to Borrowers as provided for by this Amendment is subject to the
fulfillment, of each of the following conditions:
(a) Amendment. FINOVA shall have received this Amendment,
fully executed in a sufficient number of counterparts for distribution
to FINOVA and Borrowers.
(b) Authorizations. FINOVA shall have received evidence that
the execution, delivery and performance by each Borrower and each
guarantor or subordinating creditor of this Amendment and any
instrument or agreement required under this Amendment have been duly
authorized.
(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement must be true and correct.
(d) Payment of Amendment and Renewal Fees. Borrowers shall
have paid to FINOVA an amendment fee equal to Forty Thousand Dollars
($40,000) in consideration of the amendments provided herein and a
renewal fee equal to Thirty Five Thousand Dollars ($35,000) in
consideration of the renewal of the term of the Loan Agreement, which
fees shall be fully earned and payable as of the date hereof.
(e) Other Required Documentation. All other documents and
legal matters in connection with the transactions contemplated by this
Amendment shall have been delivered or executed or recorded and shall
be in form and substance satisfactory to FINOVA.
4. Fees and Expenses. Each Borrower hereby confirms that pursuant to
Section 13.1 of the Loan Agreement, Borrowers shall reimburse FINOVA for all
costs, fees and expenses incurred by FINOVA in connection with the negotiation,
preparation, execution, delivery, administration and enforcement of this
Amendment, including, but not limited to, attorneys' fees.
5. Representations and Warranties. The Borrowers, jointly and
severally, represent and warrant as follows:
(a) Authority. Each Borrower has the requisite corporate power
and authority to execute and deliver this Amendment, and to perform its
obligations hereunder and
5
<PAGE> 6
under the Loan Documents (as amended or modified hereby) to which it is
a party. The execution, delivery and performance by each Borrower of
this Amendment, and the performance by each Borrower of each Loan
Document (as amended or modified hereby) to which it is a party have
been duly approved by all necessary corporate action of such Borrower
and no other corporate proceedings on the part of such Borrower are
necessary to consummate such transactions.
(b) Enforceability. This Amendment has been duly executed and
delivered by each Borrower. This Amendment and each Loan Document (as
amended or modified hereby) is the legal, valid and binding obligation
of each Borrower hereto or thereto, enforceable against such Borrower
in accordance with its terms, and is in full force and effect.
(c) Representations and Warranties. The representations and
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically
made as of a date other than the date hereof) are correct on and as of
the date hereof as though made on and as of the date hereof.
(d) No Default. No event has occurred and is continuing that
constitutes an Event of Default.
6. CHOICE OF LAW. THIS AMENDMENT SHALL BE INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. EACH
BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF ARIZONA OR, AT THE
SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. EACH BORROWER WAIVES ANY OBJECTION OF FORUM NON
CONVENIENS AND VENUE. EACH BORROWER WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON THEM, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE
MANNER SET FORTH IN SECTION 19.13 OF THE LOAN AGREEMENT FOR THE GIVING OF
NOTICE. EACH BORROWERS FURTHER WAIVES ANY RIGHT THEY MAY OTHERWISE HAVE TO
COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST THEM.
7. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment or by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Amendment.
8. Due Execution. The execution, delivery and performance of this
Amendment are within the power of each Borrower, have been duly authorized by
all necessary corporate action,
6
<PAGE> 7
have received all necessary governmental approval, if any, and do not contravene
any law or any contractual restrictions binding on any Borrower.
9. Reference to and Effect on the Loan Documents.
(a) Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Loan Agreement, and
each reference in the other Loan Documents to "the Loan Agreement",
"thereof" or words of like import referring to the Loan Agreement,
shall mean and be a reference to the Loan Agreement as modified and
amended hereby.
(b) Except as specifically amended above, the Loan Agreement
and all other Loan Documents, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed
and shall constitute the legal, valid, binding and enforceable
obligations of each Borrower to FINOVA.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any FINOVA or the Agent under
any of the Loan Documents, nor constitute a waiver of any provision of
any of the Loan Documents.
(d) To the extent that any terms and conditions in any of the
Loan Documents shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this
Amendment, such terms and conditions in the Loan Documents are hereby
deemed modified or amended accordingly to reflect the terms and
conditions of the Loan Agreement as modified or amended hereby.
10. Ratification. Each Borrower hereby restates, ratifies and reaffirms
each and every term and condition set forth in the Loan Agreement, as amended
hereby, and the Loan Documents effective as of the date hereof.
11. Estoppel. To induce FINOVA to enter into this Amendment and to
continue to make advances to Borrowers under the Loan Agreement, each Borrower
hereby acknowledges and agrees that, after giving effect to this Amendment, as
of the date hereof, there exists no Event of Default and no right of offset,
defense, counterclaim or objection in favor of any Borrower as against FINOVA
with respect to the Obligations.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
FINOVA CAPITAL CORPORATION
By: /s/ Frank Monzo
-----------------------------------
Name: Frank Monzo
Title: Assistant Vice President
OAKHURST COMPANY, INC.
By: /s/ Maarten D. Hemsley
-----------------------------------
Name: Maarten D. Hemsley
Title: President
STEEL CITY PRODUCTS, INC.
By: /s/ Maarten D. Hemsley
-----------------------------------
Name: Maarten D. Hemsley
Title: Chief Financial Officer
DOWLING'S FLEET SERVICE CO.
By: /s/ Maarten D. Hemsley
-----------------------------------
Name: Maarten D. Hemsley
Title: Chief Financial Officer
8
<PAGE> 9
OAKHURST MANAGEMENT CORPORATION
By: /s/ Maarten D. Hemsley
-----------------------------------
Name: Maarten D. Hemsley
Title: President
OAKHURST HOLDINGS, INC.
By: /s/ Maarten D. Hemsley
-----------------------------------
Name: Maarten D. Hemsley
Title:
G & O SALES COMPANY
By: /s/ Maarten D. Hemsley
-----------------------------------
Name: Maarten D. Hemsley
Title:
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 255
<SECURITIES> 0
<RECEIVABLES> 3,871
<ALLOWANCES> 397
<INVENTORY> 6,525
<CURRENT-ASSETS> 10,660
<PP&E> 2,079
<DEPRECIATION> 1,347
<TOTAL-ASSETS> 17,469
<CURRENT-LIABILITIES> 8,444
<BONDS> 7,910
0
0
<COMMON> 49
<OTHER-SE> 1,066
<TOTAL-LIABILITY-AND-EQUITY> 17,469
<SALES> 8,220
<TOTAL-REVENUES> 8,273
<CGS> 6,603
<TOTAL-COSTS> 6,603
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> (553)
<INCOME-TAX> 0
<INCOME-CONTINUING> (553)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (553)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
